In the 13th century, the Grand Duchy of Lithuania rose. Under the command of Grand Duke Mendog, the Lithuanians began their expansion, conquering parts of Kievan Rus' in the east and extending south to the Black Sea coast.
However, ambitious expansion also laid the seeds for the Grand Duchy of Lithuania.
Their sphere of influence gradually reached the vicinity of the Golden Horde, and in the face of the Mongol iron cavalry, which terrified Europe, the Grand Duchy of Lithuania could only retreat and carefully maintain its own living space.
At the end of the 18th century, the Lithuanian-Polish Commonwealth came to an end and was incorporated into the Russian Empire during the partition of the Russian-Austrian Empire. From then on, the period of Lithuania began to be ruled.
After the outbreak of World War I, the German Empire entered Lithuania, and Lithuania once again became a pawn in the great power game. Although independence was briefly gained after the war, the good times were short-lived and World War II broke out.
In 1940, Lithuania was forcibly incorporated into the Soviet Union, becoming one of the fifteen union republics. The Lithuanian people had to adapt to the Soviet system, learn the Russian language, and accept a planned economy.
In 1991, the Soviet Union collapsed and Lithuania regained its independence.
However, half a century of Soviet rule left an indelible mark on the country. After independence, Lithuania still had some fear of Russia, which prompted them to eagerly throw themselves into the arms of NATO in 2004.
Debt is piling up
At the beginning of 2024, Lithuania's national debt has climbed to $47 billion, almost crushing the country's economic lifeline.
You know, Lithuania's total GDP in 2021 was only 55 billion euros, and today's debt has accounted for 80% of its annual GDP. This ratio is reminiscent of Greece during the European debt crisis around 2010.
A closer look at the structure of Lithuania's economy reveals the root of the problem.
Lithuania lacks significant resource advantages and has a relatively weak industrial base. Since the collapse of the Soviet Union, Lithuania's economic development has been largely dependent on agricultural production and light industry manufacturing. Although joining the EU has brought certain development opportunities to it, the unity of the industrial structure has always been an insurmountable bottleneck.
China had been Lithuania's most important trading partner in Asia before China imposed economic sanctions. Data shows that in 2020, the bilateral trade volume of neutrality reached more than one billion US dollars.
With the deterioration of bilateral relations, this trade channel has been almost completely disrupted. At the same time, Russia, as Lithuania's main trading partner in Europe, has also stopped economic and trade exchanges with Lithuania due to geopolitical conflicts.
With the loss of two major trading partners, Lithuania's foreign exchange earnings have fallen sharply. The government had to borrow to keep the country afloat, which led to a rapid expansion of the size of the debt.
The downgrade of Lithuania's sovereign credit rating by international rating agencies has further exacerbated its difficulty in financing international financial markets.
The EU itself is facing severe economic challenges, with persistent inflation and high energy prices in member states. Even an economic powerhouse like Germany is struggling with economic problems.
It is difficult for the EU to come up with sufficient funds to aid Lithuania; The United States, on the other hand, is focusing more on its own economic problems.
In the face of domestic and foreign difficulties, Lithuania's economic predicament seems to have entered a vicious circle: rising debt leads to credit rating downgrades, rating downgrades lead to higher financing costs, and high debt interest further increases the fiscal burden.
If Lithuania is unable to find an effective solution in the short term, the country may face its worst economic crisis since independence. Lithuania needs to re-examine its economic policy and foreign policy and seek a new way out of its predicament.
chain reaction
In 2024, the international situation can be described as a wave of unsettled. The impact of Russia's invasion of Ukraine has triggered a series of unbearable economic shocks for a small country like Lithuania.
After the European Union decided to impose an energy embargo on Russia, the once endless supply of Russian natural gas came to an abrupt end, and the energy of the whole of Europe was cut off. Liquefied natural gas (LNG) in the United States has taken the opportunity to fill this gap, but at a much higher price than usual.
Every American LNG freighter destined for Europe can make a considerable profit, which undoubtedly increases the economic burden of European countries.
Germany, as an industrial power in Europe, has relied on cheap Russian energy for many years to maintain its strong industrial system.
The surge in energy prices has forced many German factories to reduce capacity, and some are even at risk of shutting down. This trend of "deindustrialization" has had a profound impact on the entire European economic system, and it is only natural that Lithuania, as a member of the European Union, is not immune to it.
In response to rising inflation, the Federal Reserve has adopted an aggressive policy of raising interest rates. Although this decision helped stabilize domestic prices in the United States, it had a huge impact on global financial markets.
The depreciation of currencies in emerging market countries and the acceleration of international capital flows back to the United States have made it difficult for small economies like Lithuania to survive in international financial markets.
OPEC's decision to cut production jointly with Russia has directly pushed up international oil prices. High energy prices have not only pushed up production costs, but also further exacerbated inflationary pressures.
In response to this, the Fed may have to keep interest rates high in the future.
Lithuania is in an increasingly difficult position, as a small economy highly dependent on foreign trade, which has to deal with the cost pressures of rising energy prices and the financing difficulties caused by the turmoil in global financial markets.
To make matters worse, traditional aid channels appear to be closed: the EU is preoccupied with its own economic woes, while the US is focused on controlling inflation.
The IMF report pointed out that the current global economy is facing the combined effect of multiple risks, and the road to economic recovery in Lithuania is full of uncertainties.
Seeking a turnaround
In 2021, the Lithuanian government announced that it would allow the Taiwanese authorities to set up a representative office in Vilnius under the name "Taiwan" and invite Taiwanese officials to visit. The Chinese government immediately issued a statement stressing that the move was a serious violation of the "one-China principle" and warned Lithuania that it would bear the consequences.
The Lithuanian side did not change its position, but responded with a "sovereign decision". Ostensibly, Lithuania hopes to strengthen its ties with the West and gain more economic and political support, but this is not the case.
China then downgraded diplomatic relations between the two countries to the "chargé d'affaires level", and Lithuanian goods were restricted from entering the Chinese market.
Lithuania's exports have plummeted, especially in industries that rely on the Chinese market, such as agriculture and laser technology. Government deficits have surged and socio-economic pressures are mounting. At this time, the political contradictions in Lithuania were also intensifying.
Seeing that the situation was becoming more and more serious, the Lithuanian president immediately said that it was a "wrong decision" to approve the establishment of a "Taiwan representative office," and even defended it later that this decision was "not approved by him."
Lithuania's trade relations with Russia have also deteriorated due to the deterioration of the geopolitical situation, which has led to a more fragile economy. In just one year, Lithuania has fallen into a financial crisis, domestic investment has fallen sharply, and the debt problem has become more prominent.
China has long become the world's second largest economy, and its influence is not only reflected in the rise of manufacturing, but also in its huge market demand and complete industrial chain.
Under the current world economic structure, although many countries have taken a hardline attitude towards China politically and even called for reducing their dependence on China, at the economic level, no one dares to truly decouple from China.
Because the stability of the global industrial chain is highly dependent on China, the supply of raw materials, manufacturing links and end markets in many countries cannot bypass China.
Although there has been a wave of "anti-globalization" around the world in recent years, it is undoubtedly difficult to completely replace China's position in the global supply chain in a short period of time.
Because of this, when China took economic countermeasures against Lithuania, Lithuania's economy was in trouble. The country's debt has exceeded $47 billion, economic growth has continued to decline, the wave of business closures has intensified, and the unemployment rate has exceeded 60,000.
As the largest seaport in Lithuania and one of the few deep-water ports in the Baltic Sea region that does not freeze, the Port of Klaipeda in Lithuania handles tens of millions of tons of cargo annually.
For China, the port could become an important fulcrum for the Belt and Road Initiative in the Baltic Sea region, facilitating the entry of Chinese goods into the Nordic market.
As a result, the Lithuanian side handed out a proposal to China - hoping that China would lease the port of Klaipeda in exchange for a loan support of 20 billion yuan. However, the Lend-Lease proposal sparked heated debate in Lithuania.
As soon as this news came out, it immediately sparked heated discussions in Lithuania.
Some politicians are adamantly opposed to it, arguing that it is a "betrayal of national interests", but more economists have pointed out that Lithuania's financial situation will be unsustainable without financial assistance.
In response, a spokesman for the Chinese Foreign Ministry said that Lithuania's actions were "extremely deplorable." From a high-profile anti-China campaign to a search for economic assistance, the Lithuanian government's change in attitude is thought-provoking.
The economic situation in Lithuania is still deteriorating, with more than 1,300 businesses closing and unemployment continuing to spread. Even if the authorities hope to save the situation with the help of the Chinese market, will it really be as they hope?
Resources:
1. Lithuania faces a difficult balance in its relationship with China Voice of America December 21, 2024
2. Will the Lithuanian parliamentary elections lead to an improvement in relations with China? VOA October 25, 2024
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